How might one calculate the elasticity of supply?
To calculate the price elasticity, we need to know what the percentage change in quantity supply is and what the percentage change in price is.
The formula used to calculate the percentage change in quantity supplied is: [QSupply(NEW) – QSupply(OLD)] / QSupply(OLD)
[Price(NEW) – Price(OLD)] / Price(OLD)
PEoS = (% Change in Quantity Supplied)/(% Change in Price)
If PEoS > 1 then Supply is Price Elastic (Supply is sensitive to price changes) If PEoS = 1 then Supply is Unit Elastic If PEoS < 1 then Supply is Price Inelastic (Supply is not sensitive to price changes)
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